Macro & Micro Economics Contents Contents 2 Introduction 3 Monopoly Market 4 Microsoft in the Market 8 Arguments against Microsoft Antitrust Behavior 10 Arguments for Microsoft Antitrust Behavior 11 Conclusion 12 Works Cited 14 Name of the of the Professor Course Number Date Macro & Micro Economics Introduction The economic development in any nation can only be achieved with the benefits of efficient allocation of resources…
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However, in the contemporary market conditions, business affairs are highly complex in nature. There are many situations in the economy where few corporate firms in the industry possess extraordinary powers to manipulate the price and quantity supplied. These are situations when the resource apportion in the economy are not proficiently executed. The wastage of productive resources in the economy leads to social welfare dampening. Thus, for ensuring proper economic development in a nation, the economy must be guided by the Mixed Economic Principles. In such situations, the power and the antitrust practices of the private business organizations are controlled by the public authorities. This project would focus on the antitrust behavior of the famous multinational company of Microsoft in U.S. (Ross, “The Economic Theory of Agency: The Principal's Problem”). Monopoly Market In the theory of economics, a monopoly market structure is characterized with no competition in the market. In this type of a market structure, there is only one seller in the market. On the other hand, the number of buyers in the industry is infinite. The single seller has the power to manipulate the market price of the product or service sold by him. The type of product or service sold by a monopoly seller in the market may be homogeneous or heterogeneous in nature. A monopoly seller is a profit maximizing agent in the industry. Figure 1: AR and MR Curve of a Monopoly Producer AR, MR Price or Average Revenue Curve (P or AR) Marginal Revenue Curve (MR) Quantity (Source: Authors Creation) The above diagram shows that the price or average revenue curve of a monopolist in the market is negatively sloped. The marginal revenue curve is also downward sloping for a monopolist. In the long run, a monopolist may enjoy normal (break-even) profit, supernormal profit or loss. A monopolist in the market discriminates among its consumers on the basis of the product prices charged to the customers (Gravelle and Rees 145). Figure2: Price Discrimination (Source: Stole, “Price Discrimination and Imperfect Competition”) As shown in the above diagram, a monopolist may discriminate among its consumers on the basis of prices. In the above diagram, for the s=2 demand curve, the monopolist charges price p2 and it charges price p1 for the demand curve s=1. It may seem that a monopoly structure is a hypothetical market but by adopting special business strategies, a firm might become a natural monopolist in the industry. Figure 3: Natural Monopolist (Source: Tragakes 184) A single seller may grasp an entire share of market demand by taking the First Mover Advantage in business. By increasing the base of customers, the company may enjoy economies of scale in production. Scale economies in the long run would help the firm to minimize the average cost of production. In such a situation, it would be impossible for another firm to enter in the industry and sell products at such low average costs. Thus, a natural monopolist in the market enjoys scale in economies of production and prevents other firms from entering the industry. Figure 4: Welfare Loss in Monopoly (Source: Mankiw and Taylor 253) As stated in the above diagram, the efficient quantity of output is much more than the monopoly output threshold. On
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